Categories

Meta

Too big to jail?

The U.S. government pretends to be helpless to prosecute or control the big banks, claiming that the banks are “too big to fail.” And yet, the U.S. government has supreme power over the biggest banks. For example…

>>When the U.S. government is displeased, it uses fines to penalize the big banks. In March 2015 the U.S. government fined Commerzbank of Germany $1.5 billion for doing business with Iran. (Commerzbank also fired many of its German employees per U.S. demands.) In March 2014 the U.S. government fined BNP Paribas (a French multinational bank) $8.8 billion for doing business with Iran. And these weren’t even U.S. banks.

>>The U.S. government deregulated the big banks, and it can re-regulate them.

>>The U.S. governmentcould choose not to continually bail out the banks when their bets go bad.

>>The U.S. government could choose to increase federal spending, and make college free, thereby offsetting the banks’ strategy to reduce all of us to debt-slaves.

>>The U.S. government could even break up the big banks if it chose to.

In short, “too big to fail” is bullshit.

So much for the false notion at all money is issued by banks as loans, and therefore banks are God. Banks are supremely powerful, but they must obey the U.S. government, which controls whether or not the big banks can invest in countries like Russia or Iran.

For example, the big banks in the USA and Europe still will not invest Iran (at least not openly), since they fear reprisals from the U.S. government, and from the Saudis and the Israelis. The big banks are confused about what the “lifting of sanctions” means, especially given the childish and impetuous nature of American, Israeli, and Saudi officials.

Actually most of the U.S. sanctions on Iran remain in place. Only nuclear-related sanctions have been relaxed. Even if you even open an office in Tehran and you’re using Microsoft operating system, you can still be in trouble.

Iran’s funds in foreign accounts remain frozen, and only some Iranian banks have been reconnected with the SWIFT system. More than 200 Iranian or Iran-related individuals and entities remain on the U.S. black list. Even non-US companies are prohibited from doing business with anything remotely connected with the Republican Guard (which is anti-imperialist). The EU has a similar list. (Israel is demanding that the USA double its annual $3 billion gift to Israel as “compensation” for the USA relaxing some of its sanctions against Iran.)

By other means

Anyway, speaking of the big banks, the USA and Russia have been at war since 2014. The war may take the form of sanctions and counter-sanctions, but it is still war. Recall that in the late 1930s the USA blockaded and sanctioned Japan in order to make Japanese so desperate that they attacked U.S. forces in the Philippines, so that Washington would have a pretext to enter World War II. The Japanese didn’t take the bait in the Philippines, but they did in Hawaii.

The Prussian military general Carl von Clausewitz (1780-1831) famously wrote in his book On War that “War is the continuation of politics by other means.” I might amend that to say, “Bombs and bullets are a continuation of sanctions by other means.”

Russia needs foreign currency in order to buy imports. To get foreign currency, Russia exports things like oil. But U.S. sanctions have limited the parties that Russia can sell to. Oil prices are rising again, but they still remain depressed.

(Back on March 14, I wrote that, according to my calculations, oil prices had hit rock bottom on 11 Feb 2016, and would start rising again. It appears that I was correct.)

In order to get more foreign currency fast, the Russians want to sell USD $3 billion worth of sovereign bonds (i.e. Treasury securities) that are backed by Russian assets such as gold, property, and so on. As an incentive, the Russians are willing to sell their bonds at a steep discount, or at a high rate of interest.

Parties who buy the bonds will not be paid their interest in rubles, but in the foreign currency of their choice, which the Russians are betting they can obtain before the bonds mature.

Russia has invited European and Chinese banks to bid on the bonds, as well as Bank of America, Citigroup, Goldman Sachs, J.P. Morgan Chase, and Morgan Stanley. The big banks are interested in buying the Russian bonds, since the bonds will be very profitable. But when the banks asked the U.S. Treasury if it would be okay to buy the bonds, the U.S. Treasury and State Dept said no, as it would offset the U.S.-led sanctions against Russia.

According to the Wall Street Journal, American banks have made inroads into the Russian market, setting up offices there and pitching for deals. Since 2002, U.S. banks have collectively captured a quarter of annual Russian investment-banking revenue. In 2007, U.S. banks did nearly $630 million of more than $2 billion in investment-banking business in Russia. That $630 million dropped to $26 million after the U.S.-led sanctions took effect.

The U.S. government doesn’t care if U.S. banks get rich inside Russia, since investment banks are parasites that suck Russia’s lifeblood. However it is another matter for banks to buy sovereign bonds from the Russian government. That actually helps Russia, and therefore cannot be allowed.

In the graph at right, I corrected the title. When the U.S. government hates a foreign government, the foreign government is said to be issuing “sovereign debt.” (As in, “Look! The bastards are in debt, ha, ha, ha!”) On the other hand, when the U.S. government is allied with a foreign government, the foreign government is said to be issuing “sovereign bonds.”

Except for a temporary plunge in oil prices in mid-2012, Russia collected a lot of foreign currency from selling oil, and could hence afford to sell sovereign bonds, knowing it could pay back the debt in foreign currency. In August 2013, however, the oil market started shuddering, and Russia started worrying. In June 2014 the price of oil started plunging worldwide. At the same time, the U.S. and Europe imposed sanctions on Russia as punishment for thwarting Western aggression in Ukraine, and for helping Assad of Syria with electronic and satellite reconnaissance. The Russians sold no sovereign bonds in 2014, not wanting to go further into debt to Western banks.

Now the Russians want to sell $3 billion worth of bonds. Why?

[1] The Russians are desperate for foreign currency

[2] The Russians know they will be able to pay the bond interest in foreign currency, because oil prices are rising again. (Russia will get foreign currency by selling oil.)

Oil prices are rising because the Saudis are in severe economic trouble,and can no longer afford to depress oil prices by maintaining high oil output. Regardless of their lies, the Saudis are reducing output. They have no choice.

Oil prices are also rising because the oil glut, plus depressed oil prices, drove many oil producers out of business. This caused oil supplies to be used up. Now that oil is becoming scarce again, the price is rising again.

The Russians prefer to sell their bonds to China, but if the U.S. banks are willing to outbid China, then Russia may sell some of its bonds to the U.S. banks.

But – and here’s the point – the U.S. government doesn’t want the big banks to buy Russian bonds. The U.S. government hasn’t issued a direct prohibition, but has “strongly recommended” that U.S. banks don’t buy Russian, bonds. Translation: “Buy those bonds, and we will retaliate against you.”

In a sense the Russians are daring the USA. While the U.S. has applied sanctions against major Russian companies and individuals, it hasn’t taken the more radical step of imposing broader sanctions on sectors of the Russian economy such as energy and banking, or blocked the entire Russian government. The Russians are saying to the USA, “We want to sell bonds, and if you interfere, we will totally shut you down in Syria, and perhaps Lebanon and even Iraq.” (Israel is mulling yet another attack on and invasion of Lebanon. Currently the Israelis are studying how weakened Hezbollah has become from fighting the U.S.-backed ISIS ™ terrorists in Syria and Northern Lebanon.)

Also the Russians want to sell its bonds now before Hillary becomes the U.S,. President — knowing that Hillary is even more insane than Obama is.

True, Russia has been hurt by the sanctions and the fall in oil prices. The resulting shortage in imported consumer goods has caused inflation. Unemployment is rising. Nonetheless, in foreign affairs, the Russians are chess players, while the West is a bunch of thugs.

Bottom line

To repeat what I said above, the big banks are supremely powerful, but the U.S. government is even more powerful. Therefore…

[1] “Too big to fail” is bullshit.Even the biggest U.S. and European banks must obey the U.S. government.

and

[2] When we consider the evil and the poverty around us, let us remember that politicians are just as guilty as bankers.